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Market Wrap

Bonded to a Range

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     08-04-2003         High     Low     Volume Advance/Decline
DJIA     9186.04 + 32.07  9209.15  9048.58 1.59 bln   1143/2070
NASDAQ   1714.06 -  1.56  1723.27  1687.77 1.59 bln   1316/1868
S&P 100   495.50 +  1.86   497.06   487.33   Totals   2459/3938
S&P 500   982.82 +  2.67   985.75   966.84
RUS 2000  464.77 -  3.31   468.12   460.56
DJ TRANS 2575.04 - 20.87  2596.13  2547.47
VIX        22.65 -  0.13    24.90    22.65
VXN        32.65 +  0.17    34.30    32.01
Total Volume 3,453M
Total UpVol  1,733M
Total DnVol  1,583M
52wk Highs     246
52wk Lows      131
TRIN          0.62
PUT/CALL      0.93

Bonded to a Range
By James Brown

The range trading continues on Wall Street as the Industrials added 32 points after overcoming a triple-digit loss earlier in the day. The tech-heavy NASDAQ closed in the red, albeit by a slim margin of less than two points. Investors seemed to ignore the better than expected factory orders for June, which came in +1.7 percent, better than the forecast of +1.5 percent and the previous month's gain of just +0.4 percent.

The other big "economic" report was from the Semiconductor Industry Association (SIA). The SIA announced this morning that chip sales for the second quarter rose 3.2 percent from the first quarter and more than 10 percent from the second quarter a year ago. The report was positive with comments pointing to a "broad- based" recovery on the horizon. SIA projected worldwide sales to increase 10.1 percent in 2003 and 16.8% in 2004. Despite the good news the $SOX semiconductor index rose just 0.38% and remains below resistance at the 400 mark.

The talk of the day was all about bonds and how higher yields would or would not impact the economy and the stock market (as if we didn't hear enough about this subject last week). The concern over bond yields has impacted homebuilders and mortgage lenders in the last several sessions and both groups bounced lightly today as bonds rose. The question that seems to be on everyone's mind is "at what point do bond yields become attractive enough to initiate an asset allocation from stocks to the perceived safety of bonds?" Late Friday and early Monday, the yield on the 10- year note was above 4.5 percent. As Jim mentioned in his Sunday wrap that may already be enough of an incentive for more conservative money managers to rotate capital back into bonds and out of stocks.

Chart of the 10-year yield:

There was also plenty of talk about how August and September are traditionally the two worst months of the year for the stock market. It's not hard to understand why. We're currently in the doldrums of summer. Plenty of Wall Street professionals take their vacations in August, which already exaggerates the normally light volume during the month. Couple this with the retail investors' focus on their own vacation before the kids go back to school and you can see why August has the lowest average volume for the year. The July earnings season is effectively over with more than 400 of the S&P 500 already reporting and the post- earnings slump settles in.

As one commentator said on the T.V. today, some of the bulls feel like just holding the markets in the current trading range is a victory. Whether you agree with that statement or not it's hard to argue that there is any real direction. The Industrials bounced off the 9050 level and some might argue it's 50-dma. The NASDAQ Composite bounced from the 1687 mark, which coincides with the July 25th low. The S&P 500 bounced strongly from the 966 level, which is relatively close to the July 1st low of 962. However, despite the bounce in the SPX it's still below the simple 50-dma.

Not helping the U.S. markets today were generally flat to down European bourses and a decidedly negative Asian market place with the NIKKEI leading the way down -158 points or -1.65%.

Chart of the Dow Jones Industrials:

Chart of the NASDAQ Composite:

Merger Mondays are back and leading off was heavy hitter General Electric (GE). GE has sold its insurance business to a group of investors lead by The PMI Group (NYSE: PMI) for $1.86 billion in cash. According to reporters this deal reflects GE's goal to sell off slower-growth businesses. Meanwhile in the semiconductor world, more specifically the graphic chips industry, NVIDIA (NASDAQ: NVDA) agreed to buy MediaQ for $70 million. MediaQ develops solutions to improve graphic displays and reduce power consumption. Rounding out the day's deals and mergers is Genzyme (NASDAQ: GENZ) who agreed to acquire SangStat Medical (NASDAQ:SANG) for $600 million in cash. This amounts to $22.50 a share for SANG and the stock soared 44 percent to $22.23 with shares of GENZ dropping more than 3 percent. GENZ said that the acquisition would affect earnings throughout 2004.

As we look ahead to tomorrow there are still a few earnings that could be significant but probably not market movers. Headlining the earnings show tomorrow is Cisco Systems (NASDAQ:CSCO) the router/networking giant. Estimates are for 15-cents a share but more importantly will be what CSCO's CEO Chambers or his management team says about Q3 and Q4 guidance. Also on the list is consumables giant Gillette (NYSE:G), financial behemoth Prudential (NYSE:PRU), and Internet conglomerate Interactive Corp (NASDAQ: IACI).

It will also be interesting to see how the market reacts to a record bond auction this week. The U.S. will be selling $24 billion in three-year notes on Tuesday, some $18 billion in 5- year notes on Wednesday, and $18 billion in 10-year bonds on Thursday. That's $60 billion in new treasury notes that the market will need to absorb, which could drive the price of bonds even lower. That of course would drive bond yields higher and put even more pressure on the stocks as conservative traders seek to move to the relative safety of bonds.


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